The huge hosts file may slow access down on legitimate sites, on the other hand for sites that contain a links to a domain listed in the hosts file, it's probably quicker to find the hosts entry than to do a DNS lookup for that domain.

As for the denial-of-service theory, Kaspersky does claim in a support forum somewhere that 2345.com is a malware site. They don't say what malware is there, and nothing is proven, also attempting to go direct to that page on 2345.com doesn't trigger a Kaspersky warning. It's the URL in that IFRAME link that it's objecting to. Maybe 2345.com used to host malware.
The fact remains that the Mudcat site has had unauthorized content inserted, and that's bad.